Trends & Ideas

The reasons why a General Partner (GP) may want to exit a fund can vary wildly, from limiting the losses from a non-performing investment, to optimizing investor relationships or seeking an edge for fundraising efforts. However, the reason why a GP exits a given fund matters far less than how they go about planning for and taking this critical final step in the private equity investment process. Exits can have a profound impact on an investment’s return, and this article briefly discusses a few of the most frequently used fund exit strategies and provides guidance for planning a successful exit.


Common Fund Exit Strategies

Trade sales, often referred to as M&A (mergers and acquisitions), are one of the more commonly used exits, wherein all shares are sold to a third-party buyer, usually within the same industry. This close alignment can facilitate faster due diligence and a cleaner closing process. At the halfway point in the year, global M&As totaled $2.4 trillion, up 158% from the same time in 2021.


Secondary buyouts (SBOs) refer to another common exit strategy in which a company is sold by one private equity firm to another. In this scenario, the seller may have already realized gains from the investment, or they wish to gain liquidity without the regulatory hassle of an initial public offering.


In an initial public offering (IPO), a company offers securities for sale on the publicly traded market. While going public has the potential for high returns, the process can be slow, due in large part to the rigors of SEC regulation and due diligence demanded for a public offering.


The popularity of different exit strategies fluctuates over time, and sellers tend to prefer trade sales and SBOs to IPOs. Since 2015, IPOs represent only about 15% of all global private equity fund exits, while trade sales and SBOs account for the approximately 85% of the remaining global exits. Nonetheless, the first six months of 2021 have already seen $171 billion in U.S. initial public offerings.


3 Essential Steps in Planning an Exit Strategy

Every exit is different, but these three principles can help you plan for an optimal exit:


1. Start planning the exit early.

Private equity investors tend to front-load their efforts, focusing on asset acquisition and waiting to develop an exit strategy until late in the game. Such short-sightedness often results in hasty exits and disappointing returns. Planning the exit early allows for more flexibility to make strategy adjustments and watch those adjustments take hold.


2. Tell a compelling story.

Most private equity buyers have the same concerns: Is this a quality asset? Will I be able to create additional value? Will this asset be attractive to another buyer in the future? Good equity storytelling answers these key questions clearly, sequentially, and with plenty of evidence to support it.


3. Evidence is crucial.

Effective equity stories are backed up by hard evidence, gathered over time, that demonstrates an asset’s past value, its current trading value, and its future potential. Contextual data further strengthens the story by answering why an asset’s value has changed or why a buyer might expect it to grow.

In sheer numbers, estimated exit counts have remained flat at around 1,100 since 2019. However, the annual aggregate exit value reached a record $290.1 billion in 2020 and is expected to remain strong through the end of 2021. A well-executed exit can make all the difference on an investment’s return, and GPs should consider planning the exit early, incorporating engaging story-telling that clearly shows the past, present, and potential future of an investment, and assemble ample evidence to support that story.


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“Starting strong is good. Finishing strong is epic.” − Robin Sharma

“Starting strong is good. Finishing strong is epic.” − Robin Sharma